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Actuaries note risks, costs in changes to Alaska teacher pension fund

JUNEAU -- A new actuarial analysis released Thursday shows that a legislative plan to slow payments into the Teachers' Retirement System will save money early but cost the state in the long term.

"The models do show a cost for proposed delayed funding. Costs are increased by billions of dollars in order to save on funding today," said the analysis, by Gabriel Roeder Smith & Company, which was contracted for by the Legislative Budget and Audit Committee, chaired by Sen. Anna Fairclough, R-Anchorage.

GRS is an actuarial consulting firm that has also worked for the Alaska Retirement Management Board, overseeing the work of the state's primary actuaries, and was already familiar with the Alaska retirement systems.

The House Finance Committee earlier this week proposed a radical change to the Teachers' Retirement System under which instead of setting aside money in trust funds to pay for pension and health care benefits that are being earned, and have already been earned, would shift those costs to future generations.

Known as a pay-as-you-go plan, it would deplete the Teachers' Retirement System trust fund and eventually rely on annual appropriations to pay retirement benefits. It was proposed by Rep. Bill Stoltze, R-Chugiak, and Legislative Finance Director David Teal.

The committee adopted that change prior to receiving the actuarial analysis that was released Thursday, and over the objection of Rep. Cathy Munoz, R-Juneau, and several other committee members.

The GRS actuarial analysis shows that under the Stoltze/Teal plan, costs for TRS contributions over the coming decades will increase from $8.9 billion to $24.9 billion, and will extend the length of time for which the state and school districts would be on the hook for making those payments for 20 to 30 years, likely to 2073.

But Teal called the GRS comparison of current and future payments "nothing short of nonsense."

"The billions of dollars in future costs cannot be compared to current dollars unless one believes money has no time value," Teal said.

The GRS analysis also warned the pay-as-you-go plan would result in risk to the state or to retirees that benefits might not be paid.

"Any time that funding is decreased to a pension system, that pension system is introduced to greater risk -- namely, the risk that a volatile event could quickly deplete the funds within the trust," the analysis said.

Teal agreed that his proposal to decrease funding did increase risk but pointed out there was already risk of market volatility, such as a fall in stock values, under any system in which the state is responsible for employees' retirements.

GRS's comments aren't specific to his plan, Teal said. "It is a condemnation of defined-benefit plans in general."

The proposed change to TRS, which provides traditional retirement for those who began work before the defined-benefit plan was replaced with a 401(k)-style plan in 2006, is one of the major changes made by the House Finance Committee to Gov. Sean Parnell's omnibus education bill, House Bill 278. It is scheduled for a House floor vote Friday.

Alaska has about $12 billion in combined unfunded liability in its TRS and the Public Employees' Retirement System.

Parnell has proposed paying $3 billion into the PERS and TRS plans this year, including the $1 billion required annual payment and an extra $2 billion in order to reduce future costs. Legislators removed that amount from the budget Parnell proposed but until the action on TRS this week had not said what they planned to do instead.

And legislators have still not said how they would deal with the PERS unfunded liability, but the questions asked of GRS suggest they are looking at a similar pay-as-you-go plan.

For PERS, the actuary said, that method would boost costs from $15 billion to $42.7 billion.

No such plan has been introduced in public yet, and Sen. Pete Kelly, R-Fairbanks, has said he's still working on the PERS issue.